REPEAT: Stocks Down As CMA Blocks J Sainsbury-Asda Merger

LONDON (Alliance News) - Stocks in London ended mostly lower on Thursday, as declines from ...

Alliance News 25 April, 2019 | 5:07PM
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LONDON (Alliance News) - Stocks in London ended mostly lower on Thursday, as declines from housebuilders and J Sainsbury sent the FTSE 100 into the red.

The FTSE 100 index closed down 37.62 points, or 0.5% at 7,434.13. The FTSE 250 ended down 122.62 points, or 0.6% at 19,871.05, and the AIM All-Share closed up 2.20 points, or 0.2% at 965.19.

The Cboe UK 100 closed down 0.5% at 12,608.86, the Cboe UK 250 down 0.5% at 17,785.37, and the Cboe UK Small Companies up 0.4% at 11,520.81.

"Newsflow was working against the FTSE 100 on Thursday as the housebuilders and Sainsbury dragged the index lower. A warning on margins from Taylor Wimpey and news that the Sainsbury-Asda merger was off saw the FTSE fall sharply on the open. Any attempt to edge higher across the session proved futile," said City Index analyst Fiona Cincotta.

On the London Stock Exchange, Legal & General ended the worst blue chip performer, down 4.9% after the stock went ex-dividend meaning new buyers no longer qualify for the latest payout.

J Sainsbury closed down 4.8% after UK Competition & Markets Authority blocked the supermarket chain's proposed GBP12 billion merger with Walmart-owned Asda.

Shoppers and motorists would be "worse off" if Sainsbury's and Asda were to merge, the CMA said, adding that a tie-up would lead to price rises, reductions in the quality and range of products or a poorer overall retail experience.

In its own statement, FTSE 100 Sainsbury's said it abandoned the deal in agreement with Asda's owner Walmart, adding bitterly: "The CMA is today effectively taking GBP1 billion out of customers' pockets."

Hargreaves Lansdown analyst Sophie Lund Yates said: "This is undoubtedly a blow to Sainsbury's, which was relying on the merger to rejuvenate what is been a paltry performance of late. Sainsbury's position in the middle of the pack makes for tough going as the supermarket space is a crowded one, and the group faces fierce competition from above and below. That's partly why margins have been hovering around the 2.5% mark, and the deal would have acted as a catalyst to get margins moving."

The stock slumped to an intraday low of 212.10p - its lowest level since 2003.

Housebuilders weighed on the large cap index after Taylor Wimpey closed down 4.2%, warning that its full-year margins will be hurt by rising build-costs inflation.

Taylor Wimpey said the underlying conditions driving UK housing demand "remained robust" - citing "continued good accessibility" to mortgages and low interest rates for customers, combined with high employment levels.

Taylor Wimpey said its sales have continued to be "encouraging" through the spring season with average private sales per outlet per week for the year to date up 1.0%, ahead of the company's expectations.

However, it expects cost inflation for 2019 to be about 5% after experiencing higher than expected inflation in the early part of the year. "Given the strong sales performance, we expect full year volumes to be slightly higher than 2018, but given the greater build cost inflation for the year, we expect margins to be slightly lower," the company said.

Fellow housebuilders Barratt Developments, Persimmon and Berkeley Group closed down 2.4%, 2.6% and 1.6% respectively.

Barclays closed down 3.6% after the lender reported a slip in first quarter profit due to a "challenging income environment" for the Corporate & Investment Bank, but was able to post a positive rate of return.

Barclays reported pretax profit for the three months ended March of GBP1.48 billion compared to a GBP236 million loss a year before. However, excluding litigation and conduct costs, Barclays' pretax profit decreased 11% to GBP1.54 billion from GBP1.73 billion a year ago.

The bank attributed this drop to a "challenging income environment" for its Corporate & Investment Bank, and an increase in impairments on "the non-recurrence of a favourable US macroeconomic forecast update" compared to the first quarter of 2018.

Barclays' total income was down 2.1% at GBP4.25 billion in the quarter, with net operating income decreasing 5.3% to GBP4.80 billion from GBP5.07 billion.

The pound was quoted at USD1.2897 at the London equities close, down from USD1.2945 at the close Wednesday.

"In the absence of any positive developments in cross party talks between Conservatives and Labour MPs GBP/USD has continued to fall away throughout the last 24 hours. After slipping below USD1.30 late last week we have dipped below USD1.29 with the move exacerbated by broad dollar strength permeating the markets" said analysts at OFX.

On the political front, UK Prime Minister Theresa May was under pressure to name a date to quit as UK prime minister, after an influential committee of backbenchers demanded "clarity" over what she will do if her EU withdrawal deal fails.

The chair of the 1922 Committee, Graham Brady, said on Wednesday it would be "a surprising response" if May suggested she might stay on as late as December this year.

However, the threat of an imminent challenge to May's position as Conservative leader was lifted as the committee's executive decided not to change party rules which protect her from a no-confidence vote until December. But it took two lengthy meetings before the executive rejected proposals to allow a vote as early as June, reportedly by a narrow margin of nine votes to seven.

"The UK government has come back from its Easter holidays without, it seems, completing its homework. Two weeks of space have not led to any breakthrough in the UK's thinking, and it looks unlikely that another vote on the Withdrawal Agreement will be forthcoming. Understandably, everyone seems reluctant to disturb the blissful calm of the past two weeks, but the clock is still ticking, and this state of affairs is unlikely to do much for sterling," said IG Group's Chris Beauchamp.

In Paris the CAC 40 and DAX 30 in Frankfurt ended down 0.3%.

In Germany, Deutsche Bank and Commerzbank will no longer be pursuing a merger, the two banks said, dashing hopes of a single competitor to take on major financial institutions in Europe and the US.

Both banks have struggled to regain profitability ever since the 2008 global financial crisis. Some politicians in Germany had hoped for the emergence of a "national champion" to face increasingly strong competition from the US, Europe and from smaller banks even within Germany.

However, the two banks said they had determined "after careful analysis" that a fusion "would not have created sufficient benefits to offset the additional execution risks, restructuring costs and capital requirements associated with such a large-scale integration".

Shares in Deutsche Bank and Commerzbank were down 1.5% and 2.3% respectively in Frankfurt.

The euro stood at USD1.1140 at the European equities close, slightly lower than USD1.1191 late Wednesday. The single currency fell to a low of USD1.1118 in afternoon trade - its lowest level since June 2017.

"The euro is cheap, dragged down by weak growth, political uncertainty and 2-year rates that are even lower than Japan's. Furthermore the market's long dollars and short euros. The risk then, is that having broken through the bottom of the recent EUR/USD range, all we do is add another coat of paint to the bottom of it, and settle into a marginally lower range, that is just as claustrophobic as the previous one," Societe Generale analyst Kit Juckes said.

Stocks in New York were broadly lower at the London equities close as earnings season in the US continued apace.

The DJIA was down 0.9% and the S&P 500 index down 0.2% but the Nasdaq Composite was up 0.1%.

3M was weighing on the Dow after the Post-it note maker trimmed its forecast for fiscal 2019 adjusted earnings.

The stock was down 11% in New York.

Excluding the impact of significant litigation-related charges, 3M now expects its full-year adjusted earnings to be in the range of USD9.25 to USD9.75 per share, compared to its previous expectation of USD10.45 to USD10.90 per share.

Meanwhile, gains from Facebook and Microsoft helped lift the tech-heavy Nasdaq.

The social media company and the Windows operating system maker were up 6.9% and 3.7%, respectively, after both reported quarterly results that exceeded analyst estimates on both the top and bottom lines.

Ahead in the US earnings calendar, carmaker Ford Motor, coffeehouse chain Starbucks, and e-commerce giant Amazon will report after the market close.

On the economic front, the Commerce Department released a report showing durable goods orders jumped by much more than expected in the month of March, reflecting a significant rebound in orders for transportation equipment,

The report said durable goods orders surged up by 2.7% in March after tumbling by a revised 1.1% in February.

Economists had expected durable goods orders to climb by 0.8% compared to the 1.6% slump originally reported for the previous month.

Brent oil was quoted at USD75.00 a barrel at the London equities close, up from USD74.48 at the close Wednesday.

The North Sea benchmark hit USD75 for the first time in 2019 following the US decision to end all exemptions for sanctions against Iran.

In addition, a halt of Russian oil exports to Poland and Germany via a pipeline due to quality concerns also supported sentiment, offsetting signs of surging US supply.

Gold was quoted at USD1,280.05 an ounce at the London equities close, higher than USD1,275.45 late Wednesday.

The economic events calendar on Friday has first-quarter results from online takeaway platform Just Eat, Anglo-Swedish drugmaker AstraZeneca, advertising firm WPP, insurer Hastings Group and state-backed lender Royal Bank of Scotland Group.

The UK corporate calendar on Friday has UK BBA mortgage approval figures at 0930 BST and US first-quarter GDP at 1330 BST.

By Arvind Bhunjun;

Copyright 2019 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Legal & General Group PLC 188.95 GBX 1.75 -
Barratt Developments PLC 495.00 GBX 1.14 -
Persimmon PLC 2,164.00 GBX 1.69 -
Taylor Wimpey PLC 140.90 GBX 2.06 -
Sainsbury (J) PLC 183.15 GBX -0.49
Barclays PLC 103.14 GBX -0.75
Berkeley Group Holdings (The) PLC 3,961.00 GBX -0.58 -

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